Alice Garcia •
August 26, 2023
Top dividend-paying stocks in the UK
Investing in stocks that pay dividends can be a great way to make passive income and build wealth over time. Stocks that pay dividends give investors a steady stream of income, which makes them a good choice, especially when the economy is uncertain.
There are a number of companies in the UK that are known for their steady and attractive income payouts. In this piece, we'll look at some of the best dividend-paying stocks in the UK, taking their past performance, dividend yields, and the investment landscape as a whole into account.
The current bear market is very challenging for dividend income seekers, but even though incomes are expected to go down, the dividend cover for some dividend stocks stays above 2.00x. Dividend cover of 2.0 or more is ideal because it means that the company is making twice as much money as it is giving out in dividends.
This means it can keep putting money back into the business and can keep paying dividends even if the business has a bad year. More information about it is in our article, What is dividend cover?
UK companies with high dividend yields and decent covers
Vodafone stands out as the stock with the highest dividend yield, capturing the attention of investors seeking reliable income. As we approach 2023, the landscape reveals other promising contenders like M&G, Phoenix Group and Glencore, all expected to have double-digit dividend yields.
However, it's prudent for investors to exercise caution when forecast yields exceed 10%. Past experiences with companies such as Vodafone, Shell, Evraz, Persimmon, and Centrica, initially touted for their high yields, have shown less favourable outcomes. For prudent dividend investing, careful consideration of a company's dividend cover becomes imperative. Consequently, certain stocks have been thoughtfully excluded from this list.
When charting your dividend investment journey, it's vital to balance the allure of high yields with a discerning assessment of a company's ability to maintain those payouts in the long run.
Glencore is a globally diversified natural resources company. It boasts a dividend yield of 10.7%, a dividend cover of 1.29x, and a payout ratio of 78%. The company faced dividend cuts in 2015, 2016, and 2020.
Taylor Wimpey is a residential developer operating in the UK and Spain. The company presents a dividend yield of 9.3% and a dividend cover of 0.96x, leading to a payout ratio of 104%. Taylor Wimpey did not encounter any dividend cuts.
British American Tobacco (BAT) is a major player in the tobacco industry. BAT offers a dividend yield of 9.2% and a dividend cover of 1.49x, resulting in a payout ratio of 67%. The company's recent dividend history shows no reported instances of dividend cuts.
Legal and General
Legal and General is a prominent financial services company. With a dividend yield of 8.9% and a dividend cover of 1.65x, the company maintains a payout ratio of 61%. Legal and General's dividend track record does not include any reported dividend cuts.
Aviva is a well-known insurance company. Boasting an 8.5% dividend yield, Aviva has a notably high dividend cover of 1.61x, resulting in a payout ratio of 62%. However, the company experienced dividend cuts in both 2013 and 2019.
Barratt Developments is a residential property developer. It offers a dividend yield of 8.1% and a substantial dividend cover of 1.97x, leading to a payout ratio of 51%. The company faced a dividend cut in 2020.
Imperial Brands is a major player in the tobacco and vaping industries. The company presents an 8.1% dividend yield and a dividend cover of 1.64x, resulting in a payout ratio of 61%. Imperial Brands encountered a dividend cut in 2020.
Let's have a look at the same data in an easy-to-read table. I included UK dividend-paying stock without good dividend cover for more adventurous investors.
|Company||Dividend Yield||Dividend Cover||Payout Ratio||Dividend Cuts|
|Glencore||10.7%||1.29 x||78%||2015, 2016, 2020|
|Phoenix Group||10.0%||0.53 x||189%||2016, 2018|
|Taylor Wimpey||9.3%||0.96 x||104%||2019|
|Legal and General||8.9%||1.65 x||61%||No|
|Barratt Develop.||8.1%||1.97 x||51%||2020|
|Imperial Brands||8.1%||1.64 x||61%||2020|
Investing in stocks that pay dividends is a smart way to make money grow and stay stable. There are many different kinds of companies on the UK market, each with its own return, cover ratio, and payout ratio. These dividend-paying stocks can help you reach your financial goals, whether you're looking for steady income streams or long-term capital growth. For more information on resilient companies with a history of consistent dividend payments, be sure to explore the article on UK dividend aristocrats.
Remember that investing in dividends can be very profitable, but you need to do a lot of studying, think about how much risk you are willing to take, and talk to a professional to make smart decisions.